Burn Rate: Home Insurance Pays Off

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There had been what was repeatedly described as a "small" fire in the kitchen. The term "small" is something I typically define as meaning "little," "limited," or "minimal." This fire was more on the order of, "oh boy, maybe we should get an architect."

The fire may have been small, but smoke had been everywhere, flooring was damaged, and ceilings were scorched. And to make certain the blaze was out, the fire department had conveniently knocked holes in various walls on the first and second floors.

It was all an accident, the kind of thing that could happen to anyone. The tenants were okay, but damage to the house -- a large colonial -- was significant.

Looking at the damage I instantly had visions of great battles to come with the insurance agency. I could picture years of my life grimly devoted to paperwork and phone calls. In fact, it didn't work that way: The insurance company quickly had an adjuster at the site, developed an estimate, had a clean-up crew at the property (to prevent further damage), and sent us a check with surprising speed. And my premiums, I am told, will not go up.

What did I learn from the blaze of '99? Several things.

• Smoke detectors are important and they work. We have both smoke detectors and CO2 detectors on all properties. The alarms went off immediately when the fire started.

• Not only should owners have fire, theft, and liability insurance, but tenants should also have coverage. As a condition of the lease, we require tenants to be insured.

• Cleaning up after a fire is more complex than it looks. The damage was not so much from the fire as from the smoke and efforts to put out the blaze. The final list of items to be repaired, replaced, or painted was surprisingly lengthy.

• In fixing up a rental property, a major emphasis should be placed on making repairs in a way that causes as little tenant dislocation as possible. This means some repairs are probably best made at the end of the tenancy when the property is vacant.

• It may not be possible to do all repairs immediately, so concentrate on the ones that need to be done to prevent further damage or discomfort. As an example, a combination stove/microwave had to be quickly replaced so that the tenants would be able to cook.

• The time you must devote to repair decisions and related matters is a cost to you. Even if you have a property manager, owners will have involvements that are time-consuming. If time is really money, then even a "small" fire will engage more of your time than you want.

• Insurance companies, adjusters, and lenders have done this stuff before. It's new to you, but old hat to them. That people in this process are experienced and knowledgeable saves an enormous amount of time and agitation.

• For tax, accounting, and other purposes, keep records of all repairs. Also, get estimates for remaining work that will need to be done in the future.

It's likely that the check from the insurance company will be payable to you -- and also to your lender. The logic is that the house is security for the loan, and such security is less valuable after part of the house has been barbecued.

I called the lender and they were astonishingly calm. "No problem Mr. Miller, we'll connect you to the right department."

Department? Who knew there were enough fires to justify an entire department?

They asked us to send the check so it could be counter-signed. We did, and they returned it immediately by overnight delivery.

There is, of course, one other thought. Find a good insurance broker and pay those premiums. In the best case you'll never have a claim, and in the worst case your claim will be a irritation rather than a full-blown disaster.